Keynes is a renowned brilliant economist and traditionalist. He was born in 1883. It was coincidental that the same year he was born is the same year that Karl Max died. Karl Max was known for the capitalist theory, and most of the written work of Keynes had expounded on the same theory of capitalism. He was the son of the great economist, John Neville Keynes. He was a brilliant student since his childhood and had had an exemplary performance in all the academic work he undertook. When he was six years, he was admitted to Goodchild preparatory school for his fundamental elementary levels. He then proceeded to Eton through a scholarship award. He then moved to Kings College Cambridge. All through his academic life, he received several awards that made him buy himself a nice lavender suit. He then worked as a chair for several organizations and also a tutor. In 1936, he wrote a book. The book had a forbidding title The general theory of Employment, Interest, and Money. Early, he had written the The Economic Consequences of the Peace which he did after despair resignation (Heilbroner 590). Keynes later died in 1946. He succumbed to a forced rest having a severe heart attack. However most of his works have been celebrated in the economic academia and this work, I am going to review some of the Keynesian economic theories under the title of the general theory.
A Review of the General Theory of Employment, Interest, and Money.
Keynes has propounded several concepts in his book about employment. He has argued pout several causes of employment and also the reasons of market volatility. He has explained all these through concepts such as money illusion. Some of the major theories of Keynes are discussed in the subsequent paragraphs.
He argues that the level of employment can be determined by the forces of demand and supply. The effective demand is the effective alternator of all levels of employment. He defines effective demand as the sum of all consumption demand and investment demand. He argues that an employer can not employ employee when the demand for his products is low because this may lead to either oversupply hence loss. So for the level of employment to rise, people must be willing to spend their earnings and also investing.
Another speculation is that people may be unemployed when they lack the general skill required in the employment activities. He also claims that people may be unemployed when they are not willing or ready to work at the foregoing wage rates. The only solution to this is people to accept the low payment rate.
There is nothing programmed in economic developments which will relieve depression. An economy in depression can persist so indeterminately. He uses the elevator theory that explains that depression can stall the market at any time as the elevator car does at all levels. The economy to avoid depression must expand, however, the expansion depends on investments and savings. In the times of depression, there is little to save, and people are also afraid of investing the little amount they have hence the situation can persist for a long time, unlike the seesaw theory which Keynes considered invalid.
Prosperity hinge on savings being injected into the economy through investments. Otherwise, a downward spiral will result in depression. Investment cannot be adamantly considered as it depends on the enlargement of production. The entrepreneur is minimally expected to surge production beyond the actual demand for goods, so the capitalistic economy unremittingly lives in the shadow of collapse. The greater the magnitude of output the greater the level of production and in most cases this can only happen when the market expands which is to mean when the demand for the consumers increases (Keynes 320).
The problems highlighted in Keynes work are also provided with the cure in the same piece of work. Keynes suggests that the best solution of unemployment and market certainties is the prime pump mechanism. Prime pump mechanisms is a situation where the government brings into the volatile market investments, expenditures, capital goods and reduction in taxation to increase the economy size. It is mostly practiced during the recession periods in the economy cycle. It is used as a boost to the economy when the private sectors are not in the position to invest or when they fear to do so. When the government spends the national income, the circulation of money in the economy flow increases and hence peoples tendency of demand also increases. And according to Keynes employment is determined by the aggregate demand.
In conclusion, the Keynes theory is also one of the revolutionary theory that was used in 1933 to curb the Great Depression. However many commentators have criticized it for not bring an excellent solution. The employment rate by then trivially decreased even after the application prime pump mechanism.
Heilbroner, Robert L. The Worldly Philosophers: The Lives, Times And Ideas Of The Great Economic Thinkers. Simon and Schuster, 2011. print.
Keynes, John Maynard. General Theory Of Employment , Interest And Money. Atlantic Publishers & Dist, 2016. reprint.
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